The Central Bank of Kenya (CBK) has maintained its benchmark lending rate at 10.5 percent in the latest review by the Monetary Policy Committee, citing falling inflation on favorable weather conditions.
“Inflation is already within the target band, and is expected to decline further as food inflation is expected to come down,” the committee said in a statement.
Kenya’s inflation declined to 7.3 percent in July 2023 from 7.9 percent in June, driven by lower food and non-food non-fuel inflation. At 7.3 percent, the country’s rate of rise in the cost of living within policymaker’s target range of 5 ±2 per cent. GDP data for the first quarter of 2023 showed continued strong performance of the Kenyan economy, with real GDP growing by 5.3 percent.
The MPC said earlier upward revision of the benchmark lending rate was paying dividend with positive impact on the overall health of the economy.
Players in the banking sector are, however, raising concerns that the tight stance could stifle credit and economic activity as loan uptake is likely to take a hit in the half to December. Earlier, the bankers lobby is urged policymakers to hold rates at their August meeting, citing the potential hit to economic activity.
Growth in private sector credit stood at 12.2 percent in June 2023 and 13.2 percent in May, CBK said. Strong credit growth was observed in manufacturing (18 percent), transport and communication (19.9 percent), trade (12.5 percent), and consumer durables (11.8 percent). The number of loan applications and approvals remained strong, reflecting resilience in economic activities.